ZTE’s New Board Handpicked by Company Backed by Chinese Government

The supposedly radical shakeup of ZTE’s board and management may not be as big of a change as it appears.

The Chinese telecoms giant ZTE announced a new board on Friday, with all 14 former board members resigning. The company paid a $1 billion fine earlier this week and has fired dozens of executives.

But a Wall Street Journal investigation found that all of the new board members were selected by a holding company called Zhongxingsin, which owns about 30 percent of the company. That company is, in turn, half-owned by two government run firms, Xi’an Microelectronics and Aerospace Guangyu.

The other half of Zhongxingsin is controlled by supposedly private companies, including one that is partly owned by two of the outgoing board members.

Five out of the eight new board members work for one of the two state-backed entities, the Journal reports. Among them is Li Zixue, the deputy head of Xi’an Microelectronics and its Communist Party secretary.

Mark Stokes, a former China director in the Office of the Secretary of Defense, describes the management reshuffle as “musical chairs,” the Wall Street Journal reported.

The selection of the new board by Zhongxingsin raises questions over whether the company will really be as changed as U.S. officials expect. Nonetheless, Commerce Secretary Wilbur Ross, who negotiated the terms of the agreement with ZTE, appears to be standing by the agreement.

“Removal of the directors and executives will have a deterrent effect on other individuals at ZTE and elsewhere, by showing that violative behavior has consequences for the individuals involved,” Ross told the Wall Street Journal.